E-audit: tools evolving to help you find your way along the paperless audit trail.
Here is a narrow look at some of the important aspects of getting the most efficiency from electronic audit tools.
The first decision firms must make is which type of workpaper software they will use. Basically, there are two types: trial balance applications and workpaper tools. Both include trial balance features that group and adjust a client's account balances to prepare financial statements, business tax returns and other reports.
Firms using trial balance software should be making the move to workpaper tools, which start with trial balance features and add capabilities for indexing other documents, such as Word and Excel files and scanned documents, to create an electronic equivalent of a firm's traditional paper workpaper files and binders.
Workpaper applications also provide features for managing workpaper information, such as responsibility, status and target completion dates, and integrating them with other applications such as word processors, spreadsheets, tax, document management, and time and billing applications. CCH, Creative Solutions, Caseware, and PPC are the main vendors for this type of audit software.
For the most efficiency from audit software, firms should focus on standardizing processes.
First, spend time developing the organization structure, processes for setting up information and review procedures. Then, train firm members and enforce compliance with the firm's standards. While it may be necessary to have different standards for different types of audits, standardization will reduce the effort it takes to get new users up to speed; provide more uniform work-papers from job to job; and reduce the amount of preparer and high-cost reviewer resources used on the audit.
Electronic checklists and decision support tools are also valuable for auditors. PPC, McGladrey, Aspen Publishing are among the vendors offering a wide range of electronic publications, checklists, audit programs and other publications in both CD and internet versions.
The workpaper software programs integrate to varying degrees with these tools to provide a suite of audit software. It is important to have these tools available to the staff in the field.
Many firms provide access to these tools from the office, but only provide paper or a partial download for staff working outside the office. The internet versions of these tools make it easy to access the exact information needed, when it is needed, to minimize wasted time.
As firms move into a total paperless environment, there may be some confusion about the role of workpaper applications compared with document management software. Both types of tools offer document security and organization features. However, workpaper applications have the key difference of being able to take a client's general ledger account balances and group and adjust them to prepare financial statements and business tax returns.
Workpaper tools are "work in process" in nature compared with the "archival" orientation of document management applications. Audit work will be performed using the workpaper application and on completion, exported to the firm's document management solution.
Both types of software will be required to achieve paperless solutions.
For audit standards relating to the creation and preservation of audit workpapers, refer to SAS 103, Audit Documentation--Paragraph 34 in particular--and the PCAOB's Auditing Standard No. 3, Audit Documentation.
California auditors should already be familiar with the California Board of Accountancy's regulations governing audit documentation, specifically in Article 9, Secs 68-68.5.
TIME AND BILLING
One of the most underutilized tools by audit departments is the firm's time and billing system. These tools can greatly improve an audit team's efficiency by promoting the detailed planning and execution of the audit engagement.
Most audit firms prepare budgets, but very few compare the results to this plan as the engagement progresses. Time and billing software have the capability to document a detailed plan of the audit and then track the actual time spent. There is very little extra effort required to use these features and the result is very timely reporting of budget to actual information.
This helps team members plan better, identify "change orders" that result in higher billings and manage more efficiently.
Key to going paperless is ensuring that all employees who work out of the office use a laptop. This provides consistent access to software tools, regardless of location.
However, without connectivity, a laptop is of very little benefit. The simplest connection option is to plug in to a client's network.
Unfortunately, a client's IT staff may be reluctant to allow "outsiders" within their network, or the firm may want to avoid any possibility--perceived or actual--that connecting to the client's network may harm it.
Thus, as important as the laptop is wireless connectivity. The increased availability of inexpensive wireless broadband makes this a viable alternative.
In-the-field internet connectivity allows employees to stay connected to the firm via e-mail. This is especially important for partners, managers and supervisors who have responsibility for several jobs at a time. It also allows for information to be shared between users and the office so that other resources are available and work can be reviewed much more quickly.
Another wireless opportunity is to establish a "field network" that can link all audit team members. This creates a work environment that promotes efficient communication, collaboration and timely review of workpapers.
However, this is not as easy as you would think. The configuration of wireless hubs and the peer-to-peer network that will access the workpaper application and other tools require complex setup. There are some software solutions, such as the one from Colligo, that make this process much simpler and at a cost that is not excessive.
The paperless audit requires documents not developed electronically to be converted to electronic form. These documents include client-prepared work papers; government documents, such as tax notices and correspondence; and mailed-in correspondence.
The decisions firms face in this area involve scanning hardware and software and the imaging process.
The hardware and software side is pretty easy. Employees who are performing audits, reviews and other similar work in the field will need portable scanners to facilitate the engagement. These scanners will have a relatively slow scan rate, but are lightweight.
Imaging software typically is bundled with the scanners or available through the document management licensing of the firm.
An important decision is when to scan. Many firms have adopted the process of scanning audit and other workpapers at the end of the engagement. This approach allows for documents to be manually annotated and worked with and then scanned "en masse" at the end of the engagement back at the office using faster scanners and administrative staff.
Another approach is to scan documents at the beginning of the process, which allows the electronic organization and management of the documents. The downside is the need to annotate (tick marks, references, signoffs, etc) the documents electronically.
AUDIT SOFTWARE TRAINING
For most firms, an audit probably uses more resources than any other service, so it's no surprise that the audit also uses more software programs than any other service. Many firms have spent years searching for the single application or suite of programs that will offer all the tools needed to perform an audit in a highly integrated manner.
The good news is that today's tools are beginning to offer higher levels of integration. The bad news is that it takes a lot of knowledge to use all the tools involved in the audit process.
Over the years, firms have spent considerable effort educating auditors. However, training on software tools and processes often has been too broad or lacking altogether.
One of the best approaches for software training is to develop a detailed list of the skills the program requires. This list should address every application the firm uses: spreadsheet, word processor, workpaper tool, time and billing software, scanning/imaging, e-mail, calendar, tax program, internet browser, work program software, etc.
It is important that the skills list be defined for the different staff levels (preparer, reviewer, assembler, etc.), and that the list focus on the process the firm will use to perform the service.
With these requirements, it is a simple exercise to have firm members self-evaluates their skills, which results in an individualized listing of the areas that require further training. The end result is a uniformly trained team that takes full advantage of the available tools in the most efficient manner.
As electronic audit software continues to evolve--adding electronic audit programs and engagement management and paperless tools--CPA firms are closer than ever to realizing one elusive dream of the digital age, the "paperless audit."
But in the meantime, firms looking to move toward electronic audit documentation have a rich array of tools to choose from.
BY TOM C. DAVIS, CPA
Tom C. Davis, CPA is owner of Tom Davis CPA, LLC and president of Knowledge Concepts, Inc, the developers of FirmWorks. You can reach him at firstname.lastname@example.org.
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|Author:||Davis, Tom C.|
|Date:||May 1, 2006|
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